Ford 2006 Annual Report Download - page 100
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Notes to the Financial Statements
98
NOTE 23. RETIREMENT BENEFITS (Continued)
The equity allocation shown at year-end 2006 and 2005 includes public equity securities, private equity investments,
and REITS. Direct real estate investments shown separately reflect a liquidation strategy that has been in place for
several years. Other assets include cash held for near-term benefit funding; cash held by investment managers for
liquidity purposes is included in the appropriate asset class balance.
The long-term return assumption at year-end 2006 is 8.50% for U.S. plans, 8.00% for U.K. plans and averages 7.64%
for non-U.S. plans. A generally consistent approach is used worldwide to develop this assumption. This approach
considers various inputs, including a review of historical plan returns and long-run inputs from a range of advisors for
capital market returns, inflation, bond yields and other variables, adjusted for specific aspects of our investment strategy.
At December 31, 2006, our actual 10-year annual rate of return on pension plan assets was 9.71% and 7.92% for U.S.
and the U.K. plans, respectively. At December 31, 2005, our actual 10-year annual rate of return on pension plan assets
was 9.79% and 8.33% for U.S. and the U.K. plans, respectively.
Health Care and Life Insurance. At December 31, 2006, we had $4.9 billion invested in shorter-duration fixed income
investments. Of this total, $1.8 billion was able to be used within the next 18 months to pay for retiree benefits ("short-
term VEBA"). Our current strategy is to invest all of the assets of our retiree VEBA in shorter-duration fixed income
investments. Consistent with our standard practice, we will continue to include in Automotive gross cash our short-term
VEBA. We refer to retiree VEBA assets that are not able to be used within the next 18 months to pay for retiree benefits
as "long-term VEBA." A portion of the total assets is managed internally, with the remainder managed externally. Ford
securities comprised less than five percent of the market value of the total retiree VEBA assets during 2006 and 2005.
Investment managers are permitted to use derivatives as efficient substitutes for traditional securities and to manage
exposure to foreign exchange and interest rate risks. Interest rate and foreign currency derivative instruments are used
for the purpose of hedging changes in the fair value of assets that result from interest rate changes and currency
fluctuations. Derivatives may not be used to leverage or to alter the economic exposure to an asset class outside the
scope of the mandate to which an investment manager has been appointed. Cash held by investment managers for
liquidity purposes is included in the appropriate asset class balance.
The expected return assumption applicable to the total retiree VEBA is 5.50%. This reflects external investment
managers' expectations of likely returns on short-duration VEBA assets over the next several years.
NOTE 24. SEGMENT INFORMATION
Our operating activity consists of two operating sectors, Automotive and Financial Services. Segment selection is
based on the organizational structure we use to evaluate performance and make decisions on resource allocation, as well
as availability and materiality of separate financial results consistent with that structure.
Beginning with the second quarter of 2006, we changed the reporting of our Automotive sector to separately disclose
the following five segments: Ford North America, Ford South America, Ford Europe, PAG, and Ford Asia Pacific and
Africa/Mazda. Automotive sector prior period information has been reclassified and is provided for these segments in the
table below. Included in each segment described below with the exception of our interest in Mazda are the associated
costs to design, develop, manufacture, and service vehicles and parts.
Ford North America segment includes primarily the sale of Ford, Lincoln and Mercury brand vehicles and related
service parts in North America (the United States, Canada and Mexico).
Ford South America segment includes primarily the sale of Ford-brand vehicles and related service parts in South
America.